Appendix: Book Review – “Robinson Crusoe” In 1719, Daniel Defoe published his popular novel, “Robinson Crusoe”. The novel is an adventure story with strong religious overtones. It also illustrates a number of important economic concepts. As a result of a shipwreck, Robinson Crusoe is cast away on an island near the mouth of the Orinoco River of South America. As a castaway, Robinson Crusoe has to practice selfsufficiency. Self-sufficiency is very difficult. To make it plausible that Crusoe is able to survive alone, Defoe places Crusoe on an island with few dangers (no dangerous wild animals, only rare visits by dangerous humans) and abundant natural resources (goats, turtles, grapes, limes, a climate conducive to growing crops). Defoe also allows Crusoe to return to the wrecked ship twelve times. From the wrecked ship, Crusoe salvages food, clothing, guns, gun powder, various tools, barley seed and rice seed, sailcloth, a grindstone, etc. With the resources that he salvages from the wrecked ship, Crusoe attempts to produce what he needs to survive. Many of his attempts at production fail. Over time, his experiences increase his human capital and his production efforts become more successful. With his increased human capital, he is able to build a safe and comfortable shelter, to plant and harvest barley and rice, to bake bread, to manufacture wicker baskets, earthenware pots, and clay pottery, to build a small canoe, to domesticate the goats of the island, to make cheese and butter, and to use a grindstone to sharpen his edged tools. The novel illustrates the necessity of saving (delaying consumption) and investing in order to increase one’s standard of living. Crusoe spends three weeks enclosing his grain field with a hedge to protect his barley and rice from goats and hares. He spends a week making a wooden spade so that he can prepare more land for cultivation. He plants his entire harvest of barley and rice, eating none of the produce, until his fourth harvest. He digs pitfalls and captures goats to domesticate. He spends three months building a hedge for an enclosure for his domesticated goats. Crusoe’s diligent saving and investing allows him to survive and to have a reasonably comfortable standard of living during his twenty-eight years on the island. Appendix: Rational Person Assumption In traditional economics, people are assumed to behave rationally. Rational people will want to do that which makes them better off and will want to avoid doing that which makes them worse off. This does not mean that rational people will never make mistakes. Rational people may make mistakes due to misinformation, erroneous logic, excessive emotional involvement, etc. Yet, assuming that people behave rationally will better predict human behavior than assuming that people behave irrationally or randomly. Rational people pursue their own self-interest. In the pursuit of self-interest, rational people respond to incentives. Example 26: When bank robber Willie Sutton was asked, “Why do you rob banks?” he reportedly replied, “Because that’s where the money is.” Example 27: If all banks begin employing teams of heavily armed security guards, the rational bank robber may turn to robbing liquor stores instead of banks. For an alternative to the rational person assumption, see the book review below. Appendix: Book Review – “Predictably Irrational” In 2008, behavioral economist Dan Ariely published the book “Predictably Irrational: The Hidden Forces That Shape Our Decisions”. In this book, Ariely asserts that human beings are “far less rational than standard economic theory assumes. Moreover, these irrational behaviors of ours are neither random nor senseless. They are systematic, and since we repeat them again and again, predictable.” FOR REVIEW ONLY - NOT FOR DISTRIBUTION Scarcity and Choices 1 - 10